Investing in the stock market right now takes guts. Awful events in Ukraine combined with a huge rise in the cost of living have sent share prices on a downward trajectory for much of 2022.
That’s why I think it pays to tap into the mentality of those who have seen it all before and still managed to thrive. The first person that springs to mind? 91-year-old Warren Buffett.
Why Warren Buffett?
In case you don’t know, the ‘Sage of Omaha’ is one of the wealthiest individuals on the planet. Importantly for private investors like me, his billionaire status has been built on adopting a strategy that anyone can understand.
Put simply, Buffett buys stock in great companies. According to him, these tend to be businesses that resemble castles that are able to fend off invaders (competition) on a consistent basis, thanks to possessing enviable ‘moats’. The latter might include highly-valuable brands or cost advantages or just being a big fish in a small pond.
But there’s another aspect to Buffett’s strategy, namely how he behaves when the chips are down. The master investor regards inevitable market wobbles as opportunities to buy great stocks that are temporarily on sale. It’s a mentality I’ve tried to adopt over the years and particularly in 2022. I’ll never be as wealthy as Buffett, of course!
So how might I use this approach now with, say, £20,000 — the maximum amount of cash I’m able to deposit in a Stocks and Shares ISA this year — at my disposal?
5 stocks I’d buy today
From the FTSE 100, I reckon Diageo and Unilever are solid choices. Both boast bursting portfolios of ‘sticky’ brands that consumers will willingly pay for. Their ability to pass price increases on should go some way to helping them navigate through these inflationary times. Supermarket giant Tesco also grabs my interest, thanks to its commanding market share.
From the FTSE 250, Games Workshop seems to tick a lot of ‘Buffett boxes’. The Warhammer brand is incredibly popular around the world, making this very financially disciplined company a leader in a (very) niche market. Out of interest, the shares are down nearly 30% in 2022, as I type. That strikes me as an opportunity to “be greedy when others are fearful“, to quote Buffett.
iPhone maker Apple is the final pick. Since I’m already locked into its ecosystem through owning a number of its devices, I’m highly likely to stick with the tech titan when the time comes to replace them. I sincerely doubt I’m alone. This brings to light another ‘moat’ quality, namely the hassle involved in switching. It should come as no surprise that Buffett owns a huge slice of Apple already.
Buyer beware
Naturally, adopting the approach of a highly successful investor like Buffett doesn’t guarantee anything. As we’ve seen, the share prices of even the best stocks can still tumble in the face of unexpected global events.
This is why it’s essential to spread my cash around companies in different sectors. Although a big fan of running a concentrated portfolio, you’d never catch Buffett investing in just one small part of the market. This ensures he never needs to sell in a panic — something that Fools like me should also avoid like the plague.
